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the inclusion requirement is 50 percent of the units and 55 percent of the area income that is a goal that we will achieve and we are also working to look at other mixes of mean incomes that might address workforce housing needs and things of that nature and are open to working with the mayor's office of housing to come up with the best use of this site to meet his department's needs. the affordable housing is important to note will be delivered in a balanced manner throughout the project and not all at once or at the beginning or end. but have a phased approach and deliver it throughout the build out period. the project is very pleased to have been recognized by the city's planning department as one of three potential eco district sites in san francisco and that is a recent announcement that you may have heard about a few weeks ago and
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we have been even prior to that actively looking at different sustainability measures that will conform the eco district including centralized waste collection and things of that nature and the think that the recognition of the planning is encouraging. and so we are exploring as many options as we can to make this site a model for the city and a model for other developments. >> of course, the project will be built with a comprehensive traffic demand management plan. i think that we as mike mentioned we benefit from peter albert's work on the water front assessment which is helping to inform the traffic thinking for the site. and the other sites along the water front. and this has been a key issue we found with the adjacent neighborhoods that transit through this part of the city
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could be improved from their perspective. both in terms of scheduling, operations, and ongoing operational maintenances of the infrastructure. so we think that this project in concert with the other projects as detailed in the water front transportation assessment will point the way to real and significant transit improvements for this part of the water front. including the potential of allow a turn back for the e-line cars that will be coming to this part of the water front and an early turn back increases the ridership capacity of that line and makes it more viability. it is exciting potential uses of this. you may remember that it shows sketched of what that might look like and that idea is
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coming back full circle to do something that could be viable and it will keep you apprised of that as you fwoe forward. the project promises many, many jobs at the project phase and full build out, and 9600 jobs are estimated to be on site over the construction over the build out period and upon build out, this site is estimated support of 11,000 jobs, both in the office sector retail sector primarily, obviously there are a few jobs associated with the anchor brewing company as well. the developer is committed to fos thank youeringing local job opportunities and developing an over all framework that addresses the funding sources with private and public. to assure that the jobs and contracting opportunities are directed to the extent possible to the local, small and
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economically disadvantaged companies. and looks forward to continuing those discussions. >> and not leaving really what has been an overview of the project land use program and the project structure getting to the deal instruct you are and i want to switch gears a little bit and give a high level conceptual overview and this is something that you may have seen before and the first item that i want to highlight is the partialization of the site and the development phasing. the ski to making this site work and key to creating value in these partials but the value will be verified through the market value appraisals and so we realize that is a moment in time where we will have to
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assess the value of a given parcel and to do that in your agreement. the deal involves the efficient delivery of the public infrastructure and the mechanism to reimburse and acquire that infrastructure. and again, as mentioned the over all goals of our negotiations has been to increase the land value to the port. to generate higher revenues over time. through the xhom nation of base and ongoing participation rent. and we also believe that we have created an environment going forward where we are sharing the risks and the upside risks as well as the down side risks as we will talk about shortly. and an overview of the financial terms. well, with the dda approval, the developer, the giants mission rock, team, master leases and fuel out of 237, much along the terms of the lease that we currently have in
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place for the parking lot. the developers is and may continue to pay all predevelopment costs and it will be repaid with the market base rate of return and the developer will pay all of the costs to install the infrastructure and be allowed to market all of the leaseses with the reserve price and no less than the allocated share of the $3.5 million base rent. the port has agreed to one or two prepaid leases up front as a way to generate revenues quickly to pay down predevelopment costs. and therefore, reduce the amount of carry on those costs. and each individual parcel will include annual participation in
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the management events and resets. so, as mentioned one of the first tasks that we will accomplish upon getting approval is executing a master lease, very similar to the terms that are there today and that allows horizontal development to begin, the developer building infrastructure parcelizing and marketing the site, port and the city creating an ifd as mike talked about and options to develop the parcels going forward. it is important to note that each of the parcel leases will be a certain lease between the port and that vertical developer that we will have a long-term interest in these leases going forward and direct relationship with the vertical developers. this what the master lease for
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control of the site. and infrastructure development in a little more detail and privately funded and we have come up with a mechanism of reimbursing the developer and their costs and returns on the costs. and to do that, we would assess each parcel's development rates value and that will be a cost that the vertical developer will pay. we will also reimburse through proceeds through any trust parcels, this site has the potential for creating a parcel taking it out of the trust completely with the state commission approval and selling that on the open market. that will generate early revenues to return the high costs. also to use special taxs in that increment and potentially public bond proceeds from
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public financing mechanisms. i mention the returns for the costs and this slide goes into detail about those returns. the return will be the greater of 20 percent of annual return on their unreimbursed equity and the highest balance of the development costs that are outstanding at that time. we have created a mechanism to incentivize the developer to complete the build out and achieve the maximum rents for the port and should those rents reach 4.5 million, we have created them again, in incentive where the developer will share in that rent, when it reaches that threshold. >> the returns do have a cap on them so that the port is not exposed on the back end. and the controlling risk lying here talk about how that cap
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works or should we have a shortfall in our predevelopment right sales. a slide on the public financing mechanisms that we have been talking about. it is a valuable tool and it helps us to reduce the project risks. it accelerates the public benefits to the site and increases the port rents. and the sources for public financing reimbursed the developers horizontal costs as we discussed and there is a detailed financing plan set forth to describe the mechanisms and the phasing of the public financing mechanisms. one of the sources that i mentioned a few minutes ago for reimbursing the developers predevelopment and horizontal
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costs with the development rights payment and this is a sort for which the port reimbursing the developer and the vertical developer of each developed pad or parcel is required to make this. it is in addition to the rent that the parcel will deliver to the port and it is a payment that is determined by the amount of horizontal costs that have been spent and need to be retired and so there is a process to determine that will involve real estate professional and brokers to make sure that again, the high costs, the high return costs of horizontal infrastructure are paid down as quickly as possible. >> so, again, the master leases between the port and the developer for the entire site
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as each pad is readied each will be leasing under a partial lease and what those parcel leases look like and one of our tasks between now and the dda and the master lease execution is to come up with a form of partial lease, it is larly mirrored on the leases to date and it will be customized to fit the site and the uses that are contemplated for each parcel. the reserve rent is a minimum of 3.5 million for eight of the development partials which excludes the lead parcels that will be discussed to be used to generate the revenues to generate the fashion and excludes the lead partials and the parking structure and pier
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48. $3.5 million is attributed to the remaining. the base rents and the annual rent will be determined based on a fair market appraisal for the rights pavement and the lead parcels are transferred to retire those expensive costs as soon as possible. >> there are mechanisms in the parcel lease that we have contemplated of increasing the base rent every ten years and also allow for a percentage rent structure to benefit the port over the long term life of these assets. the leases have provisions for, again, generating at dishal revenues to the port and provisions for participating in
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capital event as in this slide. for instance, a condo going forward. initially about the water mark condo with the branch and also on another project in the northern water front. it is really a way to per spet youally benefit from these properties going forward if there is a condo built on the site and also in the commercials, 1.5 percent of net proceeds going forward. >> and should one of the buildings being refinanced the port is entitled of a transfer fee of 1.5 percent, excluding the proceeds designated for investment that come back to the site and invest in the property to keep it in a productive mode. this slide discusses and describes the developer's
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options for the parcel leases. i mentioned earlier that there will be eight development parcels in addition to the two lead parcels and the developer will have the option to lease those directly. and be the vertical developer that the port executes a separate lease with. and in the process here, describes how that will happen. we would meet and confer with the assistance of a real estate professional to decide when the market supports a vertical development on a given parcel and once we have decided to proceed with the development we would issue joint ininstructions to an appraiser to value the site so that we have a known, fair market value. and after all of that happens, if the port still believes that there is an economic justification for the lease and developer believes otherwise, and we have the right to put a parcel to them. and requiring them to exercise
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the option or lose it. >> certain parcels may be offered by an rfb to establish a value to meet and hire an appraiser to assess the value. this is another tool ta we have to use the rfp process the process that they are familiar with to conduct an rff and a bid if you will, an option to determine the fair market value. in the beginning of the meeting we were pleased and very excited to be moving forward with the first tenant for the project at pier 48 anchor brewing company and we have been meeting with them off and on for some months now and believe that the site holds
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promise for the expansion and brand and it is a good way to activity a historic structure with the historic use in the city it is a good marriage of the uses and the property locations and we also believe that it will help to accurate the remainder of the projects across the street at lot 337. the lease terms for the anchor brewing company, use of pier 48 will be similar to other warehouse leases that we have done along the water front and the shed. and there is a shed use and a office space and of course a retail component that is the large majority of the space, so the 200,000 square feet will be production storage and leases that we are familiar at executing and managing. we want to look forward to having that relationship directly with anchor. >> and the current proposal, that we have been studying is part of the deal had
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anticipated that pier 48 investments will not come until phase four and so quite a bit down the road. this proposal or use that we are looking at with anchor brewing could easily or definitely accelerate those expenditures earlier in the process. and that could change the over all project financials in which we will be reporting to you going forward. >> at this point i would like to thank you for your time and introduce jonathan sterns who will walk you through the analysis of the deal from a financial perspective. >> jonathan stern, so phil has talked about the project and the term sheet which was the various agreements that we have in place to move forward through entitlements and binding dda and agreements. and we thought that it was important to tell what we think, or what we are trying to
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accomplish at the staff under the commission's direction and what we think that the financial results will be. so i think that there are two parts or two stories that we need to tell about the capitol needs of the project and the site that you just saw and how much that is going to cost and how we are going to fund it. and what we think that the out comes are going to be in terms of rent. just starting over all, this has always been used to that long time that phil showed you earlier in 2007, this is in view of the revenue opportunity site this is no longer directly needed for port maritime purposes it is just lucrative in the form of the parking lot as we can see the mission bay has grown up around us and a great opportunity to bring more and more certain revenues to the port for a long, long term and then, also benefit the city and port, the water front edge through public benefits, to the public. so, really the principal here
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is to maximize the port revenue opportunities of the site, this really in the development process means taking on certain rifbs which i will talk about in a little bit but trying to create a structure where we are sharing that risk in such a way that we do get those opportunities. first i want to point out that one of the main ways that we are doing this is taking a little bit of the development risk, and but also trying to reap the maximum benefit is that we are prizing the lapped and the finished parcels after the entitlement and infrastructure and that is a ready to go parcel and create the maximum value and subject to market timing risks which is something that we need to consider and we are not trying to set the value now or to speculate to the spakt value we are trying to create a maximum opportunity for the port to get that value. the normal and deal very normally would involve an early
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sale, or option, that is not the structure that we have put forward. other principles are for the port to continue to have participation. these are long terms, the current use makes a lot of money and will grow over time but it does not have this time to create large, new, economic opportunities for the private community through the development and share as a city agency and so that is one of the main reasons that we are trying to do this. before i move on to port rent, i want to talk about the numbers behind what we think that the infrastructure and costs will be and the source of the funds, if you will. >> to get this month ject done right now when we look at the project per form a analysis, it looks like there will be 100 million of the developer that will be needed to get the project done, this is a lot of at risk money, $15 million of
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that will be happened in the predevelopment phase and that is very risky money and we have as phil as pointed out and negotiated what we believe to be a market rate of return on that development capitol. they will provide the up front money and there will be other sources to funding that will partially pay directly some of the infrastructure into that development costs and reimburse their equity... and return on the equity. we are talking about $125 to $154 million. with this announcement of anchor, before we peged the total infrastructure price of $154 million that involved quite a bit of developer money or public bond money that will go into fixing up pier 48, one
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of the reasons that the anchor is very exciting and they are desire to both accelerate the process and use it as a long-term industrial use that could lower the over all price of reusing pier 48, potentially and also bring other sources of an end user sources to doing any of the work that does need to happen. that is why we are showing 154 on the perform a analysis and on the staff report we talked about 125 to 126 million is what we considered the project infrainstruct stur and so this is the over all capitol sided idea is that will unlock the value of the parcel, and the development rights pavements are up front lease payments and also help to reimburse and pay for infrastructure we are showing that around $54 million and the rest of that money will go into port rents.
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we are viewing this as an opportunity site is that we are taking there are developers that the market rate of return and we are offering them a form of participation, once we have reached what we see is a fair, and lofty bench mark of $4.5 million for the site and we want them to have incentives for us to get that amount of money and more. but after that really almost all, all of the value of the site will come through or back to the port in forms of base and participation rents on those created parcels. and we have very important to how we are strieg to structure this. currently as phil mentioned we earn about $3.5 million on the site and only about 2.4 million is guaranteed but the parking is reliable and that is one of the driving factors that led us to the $3.5 million reserve rent and that is a do no harm
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sort of reverse case and on proform a we look at what we think, we look at the valuations of the current development opportunities that are created, we look at the rates of return that we have negotiated and we have looked at the timing that we expect and all of the other factors that go into development. we believe that we can by 2022, have 4.5 million dollars of base rent to the port in the 8 parcels that we will collect rent. and we think that is a good out come. and we think that we also believe that those rent structures will grow with the participation rent and those resets. this is roughly, the numbers that we, you know, in the graphic form over the 75 plus years of the project, where we think those rents will be arrayed. i think that we are only showing the first 35 on this graph but this gives you a sense how the blue lines where the interim parking will decrease as the parcels are taken down and the base rent will come back in its place, by
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2020 that we will have a level of 4.5 million dollars and at some point, shortly there after, participation rents will start growing behind them and will trend upwards. and periodically every ten years, the participation rents will largely be concerted to the base rent and so that is where the red lines start going up. what does this all mean? on a net present value basis which is not necessarily the best metric to a 75 year lease ongoing participation and we are looking at approximately 130 to 135 million of net present value for this proform a analysis that exceeds $106 net value of the current parking uses. i think that this ongoing leases and participation of those leases will provide through the length of the leases a very good continuing
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revenue source to the port and it will grow in a way that parking will grow in the long run. the other thing to point out and sorry to the jumping around and a lot of concepts here altogether. there are port rents which i just discussed and one of the other important points and they mentioned is that there are tax increments through an ifd district that can be afforded through the project and we are talking about over a billion dollars of taxes that will be generated over the life of this project and in the front end that will be used to support the public infrastructure and we will explore the mechanisms using both the ifd increments and backed up by special taxes in the cfd district and that is important that we described and these will specifically are used to develop the public portions of the project both infrastructure and public
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amenities and parks. >> finally we talked about money and revenue and i want to talk about the risks and the staff report goes into the details of that and he is good at pointing out the risks and how we mitigated them throughout. one is entitlement risk and that is an important one and that ends up getting approved for development here will effect both what can be built here obviously but also the residual land value to the port and the development costs of $125 to $150 million that will not go down dramatically even if the heights and uses do go down, the port is general to this entitlement risk process and that is why we have been urging the development partners and we have been good at going to the public to get a broad consensus of what could be built here. we are offering them a market rate of return, if the timing does not go high or the costs
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are higher there is risk that we will be in a position that money will be out there for a longer period of time. that 20 percent market rate of return that is a lot of risk for the port that is one of the reasons that we are recommendinging the core structure with the lead parcels that are transferred early and negotiated a cap in the over all returns that the developer can go for. i just mentioned cost risk, we have had and we have inspected closely the infrastructure numbers here and i told you a little color about what the pier 48 numbers verses infrastructure numbers and the planning and the costing verified by the third party and there is cost risks but we have done our best to this point to bracket that risk. we have talked about market risk and we were willing to take market risk and recommending taking the market risk in this case to

February 28, 2013 2:00pm-2:30pm PST

TOPIC FREQUENCY Us 3, Dda 1, Jonathan Stern 1, Jonathan Sterns 1, Peter Albert 1, The City 1, The Port 1, New 1, Parcel 1, San Francisco 1, Phil 1
Network SFGTV
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Scanned in San Francisco, CA, USA
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